According to Cronje, franchise systems are based on a proven model that can be successfully replicated. Because of this, these types of businesses are often considered less risky by entrepreneurs.
The reality, however, is that no franchise is immune to tough economic conditions — success factors vary depending on the concept, strength of the brand, management and the industry.
Related: How Risky Is That Franchise?
Here are six challenges that all franchisees (and franchisors, for that matter) are currently dealing with, to varying degrees.
1. Shrinking disposable income
According to Cronje, the biggest threat currently facing the franchising sector is one that is affecting all consumer-oriented businesses: A shrinking pool of disposable income. Simply put, people have less money to spend on luxuries thanks to an increase in living costs.
And, of course, there is little that can be done about this fact.
It is simply a reality that needs to be accepted and dealt with as best as possible.
If the pie as a whole is shrinking, the only solution is to try to increase your share.
2. Increasing competition
A problem that franchisors trying to increase their share of the pie are facing, is the fact that an increasing number of global (and very recognisable) players are entering the local franchising sector.
Burger King, Domino’s and Krispy Kreme have all arrived, and other brands such as Starbucks, Dunkin’ Donuts and Baskin-Robbins are on their way.
How do you remain competitive amidst such competition? “The battle for market share is increasing, with businesses constantly finding new ways of satisfying customers that favour value for money and convenience over price and ambience,” says Cronje.
Sure, brand recognition is important, but things such as value and convenience are also vital, and many franchises are choosing to focus on this.
3. Rising costs
As with the shrinking disposable income of consumers, the rising cost of many products is an economic reality that many franchisees are being forced to deal with. Issues such as the current drought have caused prices to spike, and passing all of these increases on to the consumer simply isn’t an option.
4. Falling staff morale
When business conditions are not great, some franchises can often not afford to hire more staff (or even bring in temporary staff), leaving employees severely stretched and demotivated. Job security issues are also heightened during this time, as some employees may fear losing their jobs.
Cronje says motivating staff and constantly updating them on how the business is doing is extremely important, since excellent customer service goes a long way during tough times.
5. Bad debts
When times are tough, cash flow inevitably becomes an issue. With interest rates likely to continue increasing throughout the year, Cronje believes franchises may find it difficult to service debt and borrow more money.
Because of this, it is important to be conservative and not over-leverage. Now is not the time for aggressive expansion.
6. Adapting to consumer needs
“Following a tried-and-tested model is no longer a guarantee for success in the franchising sector. Convenience and innovation in technology is increasingly becoming important to customers,” says Cronje.
Easy ordering and the ability to customise orders are becoming very important, with some brands even allowing customers to order with the help of a mobile app. Innovation is important, and brands that don’t keep up with the times will find themselves left behind.
How Strong Is Your Franchise’s Quality Control?
Your key objective as a franchisor is ensuring every one of your locations maintain the same quality standards. Why?
If you’re concerned about brand consistency as your footprint grows and you acquire more franchisees, listen up. While growth is good, keeping tabs on the quality franchisees are providing versus your company-owned locations’ efforts is difficult, but not impossible.
“McDonald’s is among the world’s most quality-oriented brands, but the value proposition and price point aren’t appropriate for steak and lobster,” says Mark Siebert CEO and Senior Franchise Consultant at iFranchise Group, an author of Franchise Your Business, The Guide to Employing the Greatest Growth Strategy Ever.
“There are, however, high-end franchise brands known for detailed attention to quality. Quality is not about what’s on the menu; it’s about consistency of the operation.”
Inconsistency ruins things
Many franchise brands risk failure by not establishing and maintaining quality for each outlet under the network’s guidelines. Regardless of whether a store is run by your company or a franchisee, if there’s glaring inconsistency in service and product quality between different locations, it’s likely to harm your brand’s reputation.
To establish the strength of your quality control standard, ask yourself the following questions:
1. Is your operational training procedure customisable?
Acquiring new franchisees is a chance to cement your training and quality processes and establish if these can be standardised, or if customisation is necessary.
“Training is equally as important as franchisee selection when it comes to maintaining the brand. The best franchisors routinely provide the most – and the most comprehensive – training to their franchisees,” says Siebert. “If standards aren’t rigorously enforced from day one, chances are these standards will continue to slip, and in the process, they’ll become more and more difficult to maintain.”
Because different locations present varying climates and market preferences, remember to customise your training materials based on respective franchisees’ markets, keeping in mind to remain consistent with your brand’s core identity.
2. Have you provided the right tools in the franchisee manual?
Duplicating your franchise’s success relies heavily on mapping out the roadmap for your franchisees and their employees to follow. The right tools will most likely yield the same results you have achieved.
“Documenting systems of operation lend a big hand in a quality control,” says Siebert. “A robust manual has multi-fold benefits and not only serves as a blueprint for operation, but as an ongoing piece of reference for even the most established franchisee, becoming the default go-to in most every scenario.”
3. Do you understand the role of supporting each franchisee?
Whether you choose to conduct on-site field visits, offer master classes like Nando’s, or check in via email or phone monthly, the ultimate goal should be aiming for higher-quality and more profitable franchisees through ongoing support and reinforcement of brand standards.
Quality control is all about commitment. For a good franchisee, that commitment comes naturally. For the franchisor, it comes at a price. But franchisors who are willing to pay that price will find their ability to build a quality brand greatly enhanced,” says Siebert.
Could Semi-Absentee Franchise Ownership Be For You?
Ready to become your own boss…for only 15 hours a week? Yes, you can become a franchisee while still clocking into work. Here’s how.
If you want to keep your current job while owning your own franchise, you may want to look into semi-absentee franchising.
“A semi-absentee model allows you to work on the franchise for ten to 15 hours per week while continuing full-time employment. Then when the time is right, you can exit your day job to focus entirely on your business,” explains Jim Judy, a consultant at Franchoice.
When you have a capable manager to oversee the daily operations of the business, you have the flexibility to work your full-time job and ownership of a fully-fledged business. But first, the following considerations need to be made:
How will the decision affect your finances?
While being a semi-absentee franchise owner may require less from you in terms of time, the financial commitment is the same as investing in a franchise as an owner-operator. The decision to become a semi-absentee franchisee should not be made before examining your needs, goals and expectations of the business. Asking yourself the following:
- Do I want to become a franchise empire builder?
- Would I like to build numerous concepts?
- How much capital do I have to invest?
Keep in mind that semi-absentee models may take longer to turn a stable profit if you’re not giving it your full attention due to spending less time working on the business.
“Semi-absentee business models are also expensive,” says Heather Rosen, president of FranNet of Virginia, a franchise advisory firm. “Because the owner must not only rent the space but hire a competent manager.”
Do you have the necessary skillset?
The key to managing a franchise while at you have a full-time corporate job is having impeccable people management skills. This is because having a manager run your business while you oversee them requires you to be comfortable with delegating and trusting that they will handle the day-to-day operations of your business.
In addition to people skills, you may think certain talents are required before calling yourself a business owner, but each franchise is different.
“Some franchisees find that the available training and the business concept allows them to use their particular talents and skills to enter semi-absentee franchising without management or business ownership experience,” say experts at Franchise Direct.
Can you balance your schedule adequately?
Even if your plan is to one day leave your job and become an owner-operator of your franchise, while you’re still on your employer’s payroll, you will need to work out ways to handle your nine-to-five tasks with your business’ success. This is an important aspect of choosing the kind of franchise to purchase. While most semi-franchisee suitable options are in retail or the service industry, ensure you’re able to keep track of the business remotely and can periodically check in on how things are going.
Insights On Recruitment That Could Affect Franchise Performance
A critical aspect of operating any successful franchise chain is getting the right franchisees on board.
You’re facing a lot of competition as the franchising industry continues to grow. International brands, local giants, and new innovative entrants to the market require you to step up your game. Not only are you geared for growth, but you need your new locations to compete with the best.
“One of the success factors for franchise systems is market penetration which is often achieved through expansion, by opening new stores with quality standards that match the brand – through franchisees,” says Ethel Nyembe, Head: Sales Optimisation and Planning at Standard Bank Group. “The wrong fit, however, can seriously set a franchise’s growth back many years or cause irreparable damage to its reputation.”
Besides the challenge of trying to make your brand more appealing to franchisees in a competitive market, acquiring the right candidates to join your franchise requires the following:
1. Draw up (and adhere to) a checklist
Not all franchisees are created equal, and even a candidate with previous franchising experience may not be the right fit for your particular brand. Alternatively, you can decide to train a potential franchisee if you see potential.
When narrowing down your list of franchisee candidates, consider the importance of this:
- How important is prior experience in terms of the franchisee’s ability to become profitable in their first year?
- Does he or she have the necessary resources to train and support the franchise?
“You need to be clear about what you want; don’t compromise on your required skills, priority traits and qualifying requirements,” advises Nyembe. “There’s too much at stake financially and reputation-wise to settle for second best.”
2. Network in the right circles
Sometimes, if the talent doesn’t come to you, it’s beneficial to seek it out physically. Industry events are a great place to come into contact with people aiming to own and run their own franchise. If not, your presence at these functions will expose your brand to more potential people to do business with.
“During key annual industry conferences and trade shows (such as The International Franchise Expo), make a point to send attendees, to sponsor or to exhibit in order to increase brand visibility,” advises Nyembe. “Also consider participating in panel discussions.”
3. Get to know your new brand representatives
While personality tests and numerous meetings can give you an idea of whether you’re choosing the right candidate, it’s important to consider taking a more advanced approach to franchisee recruitment.
“Selecting the right candidates to represent your brand is critical to your operation’s ongoing success,” says Sue McConnachie, Vice President, Quality Credit Services Limited. “These franchisees will be the face of your company and you need to trust that they will maintain your brand image.”
The selection of franchisees is crucial because, as it carries both long- and short-term implications, including:
- Reducing franchisee failure and turnover, while increasing success and profitability
- Protecting and developing your brand’s reputation
- Focusing your resources on business planning and management instead of problem-solving
- Decreasing exposure to legal implications when a franchisee’s conduct is negative or their franchise is unsuccessful
- Minimising legal and collection claims against delinquent franchisees.
Selecting your next set of franchisees requires establishing a checklist before viewing any CVs, dedicating time to seek out potential franchisees, and ensure you’re choosing people who will take as much pride in your brand as you do.
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